Edited by J.E. King

J.W. Nevile and Peter Kriesler

This chapter is about how Keynes’s ideas in his 1936 book The General Theory of Employment Interest and Money were received in the intellectual community and acted upon by governments in Australia. The ideas of Keynes in the General Theory were more rapidly adopted in Australia than in many other countries. Of the early advocates of Keynesian ideas, Giblin, Reddaway, Coombs, Crawford, Swan and Downing were probably the most influential. All of these were important in the process of adopting and implementing policy measures, and all put an emphasis on fiscal policy. However, to paraphrase Coombs, the initial result of the emergence of the Keynesian analysis was to push monetary policy into the background. Others, especially Copland, with strong reservations about the General Theory also used its framework for policy recommendations. Keynesian analysis later also made major contributions to other aspects of the macroeconomic policy debate, particularly in respect of inflation and incomes policy and economic growth. The influence of Keynes’s 1936 ideas declined substantially after 1975 – although there was some increase in interest as a result of the Global Financial Crisis.

G.C. Harcourt, Peter Kriesler and J.W. Nevile

The General Theory showed that the main determinant of the level of output and of employment at any point of time was the level of effective demand. It did so in an environment of uncertainty using analysis in historical time. Unfortunately, most of Keynes’s insights were soon lost to the profession. This chapter considers why this occurred. The most concerted and sustained attack on Keynes’s position was by Milton Friedman. Friedman argued that his work on permanent income as the major determinant of consumption invalidated Keynes’s use of the consumption function in The General Theory, with important implications for the multiplier and the efficacy of fiscal policy. The attack by the conservative right wing in America on Lorie Tarshis’s excellent 1947 Keynesian textbook also played an important part in the dilution of the Keynesian message as did the resultant rise to dominance of Samuelson’s Economics: An Introductory Analysis. Given the great influence of Samuelson and the increasing tendency of American economics to dominate English language economics, this contributed decisively to the undermining of Keynes’s theory and policy.